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BART FRIEDMAN: Welcome (to) today's Council on Foreign Relations meeting. The meeting is part of the C. Peter McColough Series on International Economics. Our next meeting in the series will take place on Wednesday, October 14th, and will feature Lord Robert Skidelsky, emeritus professor of political economy at the University of Warwick. Please completely turn off all cell phones, BlackBerrys. Don't just put them in vibrate mode; please, just, you know, turn them off, because it'll interfere with the electronic system.

This meeting will be on the record.

Obviously today's topic is "International Antitrust Law and Policy: Opportunities for Greater Convergence." And it's my pleasure to introduce, on behalf of the council, Christine Varney, known to many of you.

Christine was confirmed as President Obama's assistant attorney general for the Antitrust Division of the Department of Justice on April 20th, 2009. She brings an impressive record of achievements both inside and outside of government service. She served as commissioner of the Federal Trade Commission from 1994 to 1997, where she cast a very well chronicled vote for consumer protection and against the Joe Camel cigarette advertising campaign.

She then ably served her clients as partner of Hogan & Hartson, including many of you in this room, focusing on both antitrust and Internet law. She was active in the antitrust lawsuits against Microsoft while representing Netscape and even predicted, while in private practice, that the new Microsoft enforcement antitrust actions would be surrounding Google.

Since all of you have her biography, I won't simply rediscuss her many accomplishments, but I would like to go directly to the meeting and have her come to the podium to -- her to deliver her remarks.

After her remarks, we'll spend a few minutes, 10 minutes or so, you know, in a little bit of a Q&A, and then we'll open the conversation up to the audience.

Again, this is on the record, and please join me in welcoming Christine Varney. (Applause.)

CHRISTINE VARNEY: Thank you so much, Bart. It's not often that I get to talk in an event which includes my best friend's father, some of my oldest friends, some of my dearest friends, members of my book club and such an august constellation of individuals, and have it all be here in this wonderful setting. So I really want to thank the council for giving me the opportunity to talk to you.

In an increasingly global economy, business must have a stable, predictable, transparent and roughly comparable set of rules to compete -- and reliable enforcement of those rules. Every time I talk with executives doing business around the world, consistency of antitrust enforcement is their top concern for me. I spoke last month about the need for procedural fairness and transparency in enforcement by competition authorities around the world.

Figuring that what is good for the goose is good for the gander, we announced last month that here in the United States we will review our merger guidelines to ensure that they fairly and accurately reflect the methodology we use to evaluate mergers.

While there has been substantial convergence in merger review since the days of GE/Honeywell, we have more to do in creating transparency and coordination in international merger reviews. Today, however, I would like to address an area we need to advance in international dialogue: the imposition of remedies for conduct found to be anticompetitive -- or, as the Europeans say, abuse of dominance.

As markets trend toward globalization, divergence on standards for single-firm conduct and remedies has potential to create problems for both antitrust enforcers and the firms subject to their jurisdiction. For this reason, it is important to push this dialogue forward. We have already made strides towards convergence on single- firm conduct, but we need to keep working on this.

The analytical approaches of the U.S. and the European Commission are more similar than ever before. Importantly, we agree with the EC that what really matters is to protect an effective competitive process and not simply protect competitors. Notably, the U.S. and the EC also share common views on the threshold issue of monopoly power, or dominance. Under U.S. law, market power and monopoly power are not one in the same. The latter describes the power to control prices or exclude competition.

The EC also considers a predominate share of the market to be a strong indication of dominance. Under both U.S. and EC law, monopoly power or dominance alone is not sufficient to constitute an antitrust violation. Although the EC's Article 82 more specifically addresses the types of potentially illegal conduct than Section 2 of the Sherman Act, it is a critical commonality that both jurisdictions require a showing of anticompetitive conduct. This requirement reflects a fundamental principle that serves to protect firms engaged in competition on the merits: Size and power in and of themselves are not illegal.

Despite these similarities, there's much room for further convergence. There may still be some level of disconnect between the U.S. and the EC in our fundamental attitudes or underlying assumptions about what it means to protect the competitive process and how competition law best achieves that objective. Such differences in overarching philosophies or attitudes can lead to corresponding differences on more specific issues and particular cases. For example, there still seems to be more skepticism in Europe than in the U.S. about the generally procompetitive nature of price discounting and the importance of efficiencies, including the ability of firms to bring new products to market.

Predatory pricing is another area of divergence. The European Court of Justice recently held that recoupment is not an essential element of a predatory pricing violation. In contrast, the United States Supreme Court has observed that unless recoupment is feasible, predatory pricing produces lower aggregate prices in the market and consumer welfare is thus enhanced.

As for efficiencies, the EC recognizes a role for efficiencies, but only when the dominant firm can, quote, "guarantee," no net harm to consumers is likely. In the U.S., efficiencies claims are evaluated under a different frame work, and the practical difference can be substantial when the conducted issue serves some legitimate business purpose.

These are just two examples of areas where the EC imposes more limits on single-firm conduct than Section 2 of the Sherman Act. The source of these specific differences may well be rooted in differing economic histories, but they are nevertheless concerning in today's interconnected global economy, particularly if they are not managed properly, because a single antitrust enforcer can affect businesses and consumers worldwide.

A lack of unity creates significant difficulties for firms developing business strategies in a global economy.

Those concerns deserve further attention and discussion among antitrust agencies worldwide.

Although these issues present highly complex legal and economic questions, I believe that substantially more progress towards convergence is not only necessary but possible. The important dialogue regarding further convergence is already under way, and I intend to be an active participant around the globe as these discussions continue.

Turning to antitrust remedies, one of the toughest issues we face is how to fashion appropriate and effective remedies and sanctions in response to particular instances of anticompetitive conduct. Of particular interest is whether competition agencies should rely primarily on antitrust fines -- either criminal or civil -- or look to a range of alternative antitrust remedies and sanctions. The issue is ripe for discussion in light of recent cases in which competition authorities around the world imposed significant civil fines in administrative contexts.

Our selection of remedies or sanctions in antitrust cases must be driven by our core enforcement objectives. Among the most important objectives of U.S. antitrust enforcement are the cessation of unlawful conduct, the prevention or deterrence of future unlawful acts, the restitution of ill-gotten gains, the restoration of competitive conditions in the marketplace, and punishment of culpable entities and individuals. Not all objectives are implicated in any one case.

In the U.S., enforcement objectives can be achieved by government action, but also through civil damage brought by private parties. The U.S. antitrust laws reflect a three-pronged approach to enforcement: criminal enforcement, federal civil enforcement, and actions by private parties or state attorneys general. Each avenue for enforcement offers a suite of remedies to be considered in addressing the multitude of concerns posed by anticompetitive conduct. The availability of several remedies which can be used in tandem or separately is an important aspect of our strong framework.

Within this framework, the U.S. may seek criminal fines following successful prosecutions, and monetary remedies upon specific contempt. Putting aside monetary relief, in every civil case, the Antitrust Division explores what forms of injunctive relief it will bring to halt immediately any anticompetitive conduct.

I believe the use of monetary and non-monetary remedies as appropriate meets enforcement objectives and may also avoid chilling pro- competitive and innovative conduct that benefits consumers.

To focus on the use of monetary sanctions, the Antitrust Division seeks criminal fines and jail time for anticompetitive conduct that is always harmful to competition and consumers, clearly identified and difficult to uncover. Hard-core cartels engage in the kind of (insidiously ?) anticompetitive conduct that implicates many, if not all, of our enforcement objectives, including punishment of culpable parties.

Agreement among competitors to fix prices, allocate markets or customers or restrict output are unambiguously harmful to competition and thus, per se, illawful -- unlegal. The maximum criminal fine for corporations that violate the Sherman Act is $100 million, and the maximum fine for individuals is $1 million. Hard-core cartel activity warrants full prosecution. And when sanctions are employed, there is little cause for concern that it will chill legitimate conduct.

However, moving beyond hard-core cartel activity, other circumstances present a more complex assessment of the optimal use of remedies. A critical distinction between cartel activity and non- cartel conduct is that the latter is reviewed under a reasonableness analysis. The implication of this reasonableness analysis is twofold.

First, punishment rationales for remedies do not apply here. Punishment is justified where the law establishes a clearly drawn line between permissible and unlawful conduct, and parties knowingly cross the line, thwart the competitive process and cause great harm. However, where the challenged conduct does not clearly violate the antitrust laws or where the harmful effects are difficult to establish, remedies supported by punishment rationales, such as criminal fines and imprisonment, are inappropriate. Under such circumstances, we must question whether significant monetary fines harm the parties' ability to compete on the merits or cause ripple effects in related markets.

Second, where challenged conduct is not per se unlawful, we must evaluate which proposed remedies are necessary to restore competition and deter future antitrust violations. As a threshold matter, deterrence rationales are on most solid ground where parties are able to identify in advance the conduct for which enforcement may be pursued and sanctions leveled. The predictability of enforcement is at the core of any deterrence mechanism. Therefore, deterrence-based remedies should be designed to send a clear message to would-be offenders regarding the scope of their potential liability. There may be many cases in which significant civil fines are not necessary to accomplish this purpose. It is therefore important for us to be mindful of the concern that more aggressive remedial schemes might chill competition on the merits, along with pro-competitive benefits and innovation that ultimately benefit consumers.

Given my concerns regarding the reliance on significant fines as a one-step solution for antitrust violations, I applaud those competition agencies that have spent time and effort developing remedial schemes that feature more than fines. The EC's announcement yesterday in Microsoft regarding the resolution of tying claims to the Internet -- the Internet Explorer browser to Windows is such an example of a creative remedy. We applaud them for their efforts and we look forward to working with them.

To be clear, even where criminal prosecution is not appropriate, other enforcement objectives may lead us to seek effective relief. For example, where the division pursues civil enforcement and evaluates which forms of injunctive relief are necessary to resolve its competitive concerns, it may also consider whether equitable remedies are warranted to ensure that those who violate the antitrust laws do not benefit from the fruits of their unlawful acts.

Additionally, in the U.S., private parties' ability to seek treble damages serves both enforcement and deterrence objectives. The interaction of government and private-party enforcement is an issue I look forward to discussing with our colleagues abroad, as other competition agencies are developing valuable proposals regarding an optimal balance.

As it is clear from this discussion, I firmly believe that a certain amount of flexibility is needed to craft effective resolutions. No one remedy fits every case, and I would urge other competition authorities to consider whether they can achieve the optimal balance through the use of a broad array of remedies.

Reaching greater convergence on antitrust remedies will be crucial as the global economy grows and evolves. With more firms based in more countries operating on a global scale -- and not just American, Europeans, and Japanese -- antitrust enforcement actions increasingly have an impact beyond the borders of our respective jurisdictions. Antitrust enforcement agencies are right to worry about the impact of anticompetitive behavior on their markets, even when the behavior originates outside the jurisdiction's borders.

However, the possibility of broad -- and perhaps unintented -- unintended -- impacts from overly aggressive antitrust remedies requires us to consider the scope and nature of the remedies themself (sic), particularly where they threaten to impact complex networks of intellectual property and innovation in a global market.

Similarly, where multiple agencies pursue civil enforcement actions with regard to the same conduct, substantial divergence in injunctive relief risks inconsistent results and may undermine one or more jurisdictions' enforcement and frustrate a firm's good-faith efforts to comply with ordered relief worldwide.

Thankfully, we have not encountered many of these instances thus far, and some jurisdictions are aware of this concern and have sought to craft antitrust remedies so they affect only conduct within their borders. However, as the global economy draws our respective spheres of enforcement closer together, more work is needed. Posing basic questions regarding our views of the rationales for antitrust remedies may be a useful starting point, as any discussion of convergence must begin with an understanding of common purpose.

I believe that many of us agree on the basic principles, but may diver -- may differ on which remedies most effectively accomplish our purpose. As has been the case with the development of U.S. antitrust law, change is not possible overnight; fashioning antitrust remedies in complex industries requires time and careful consideration by legislators, antitrust authorities, businesses and other interested parties.

In the short term, where antitrust agencies determine that significant civil fines are their best available remedy to address competitive concerns, I believe greater transparency regarding the basis for such fines will increase the effectiveness of the remedy for deterrence purposes and also serve to decrease the likelihood that pro-competitive conduct will be chilled. I look forward to talking with all of you about these ideas and my colleagues around the world.

Thank you. (Applause.)

FRIEDMAN: Great. Thank you. That was terrific, Christine.

And you know, the title is "Opportunities for Convergence." What I'd like to do is focus, at least in my part of the conversation with you, on the risks --

VARNEY: Okay.

FRIEDMAN: -- and in particular, you know, the risks of protectionism. We discussed it a little bit downstairs. But you know, some have suggested that the European Commission's severe fines and protracted and costly investigations of successful U.S. firms, in cases like Microsoft, as well as Intel -- I guess Microsoft is on its way to being settled -- may have come out differently if those had been European companies. Is this a case where there are genuine and significant differences in the treatment of single-firm conduct, or is there a valid concern that antitrust enforcement can be used for protectionist purposes?

And in that context, you know, we've seen countries like China use their newly minted antitrust laws to block the proposed acquisition of a local fruit juice company by Coca-Cola. With more countries taking the U.S. lead in enforcing antitrust laws, isn't there the increased possibility of misuse of these laws?

VARNEY: Let me take that in two parts, Bart. I think that without commenting on the specifics of the Intel case or the Microsoft case in Europe, I do believe there are different economic/legal traditions and histories in the European Union, and I talked about two of them in my remarks, efficiencies and predatory pricing. So I think there is a lens through which the Europeans evaluate single-firm conduct which is not the same as ours, and we need to continue to keep working with them to come closer together, so that we have consistent and predictable results.

I think it's very different -- difficult for businesses doing -- trying to conduct business around the world to not be quite sure if one set of pricing strategies may be okay in some jurisdictions and another set of pricing strategies run afoul of a particular jurisdiction's rules or interpretation of the rules. So that is an area where we really have to spend some time, some focus, and come closer together.

On, you know, a basic question, can antitrust enforcement be used to protect markets, certainly it is a concern. It's a concern that every businessperson I talk to raises with me. I think that when you look at, as we say, emerging antitrust regimes in countries where markets are opening up, where economies are opening up, we as the antitrust enforcers in the U.S., I think, ought to be spending a lot of time in those emerging markets providing technical assistance. As a matter of fact, there are people on my staff going over to China at the end of the month to -- along with Judge Sarah Vance and Judge Ginsburg of the Court of Appeals in D.C. -- are going to China to work with judges to sort of help them understand the framework and the criteria to apply the new antimonopoly law in China. So I think we're cognizant that there is a concern that, particularly as jurisdictions begin to build and apply their competition laws, that we have an obligation to be in there and to be really working with them to ensure that those laws are creating competition and not having adverse consequences.

FRIEDMAN: Yes. Thank you. What about the issue of the export of U.S. principles -- for example, class actions and treble damages?

VARNEY: Right.

FRIEDMAN: Are they exportable? I mean, if you're really talking about convergence, let's talk about the limits of convergence perhaps, because, there -- you know, we have been criticized in -- you know, with respect to the effect of those, you know, sort of enforcement mechanisms, and maybe you want to comment about that.

VARNEY: Is that a question of should we export our plaintiffs' bar? (Laughs.)

FRIEDMAN: Exactly. (Laughter.)

VARNEY: I'm -- there are very different legal traditions. And let's take Europe there -- in Europe and the United States. As you know, there is not a active private plaintiffs' bar in Europe. And you know, it's not clear to me that that kind of approach is consistent with their legal tradition. So there's been a conversation going on in Europe for at least a couple of years, and it continues today.

The EC has issued a paper -- although I think they may have actually recently just withdrawn the paper -- raising the question of should they allow for private actions in antitrust. For us, you know, we have, as I said, a panoply of remedies, and I believe that private enforcement is a significant deterrent to conduct that is questionable --

FRIEDMAN: Right.

VARNEY: -- but you know, pretty on -- pretty much on the far end of questionable.

It's not clear to me that in Europe that is the best solution. It's something that I'm continuing to talk to them about. It's clearly not a solution that is anywhere near ripe in emerging regimes. I mean, those are economies that in some instances are just beginning to open up, and I doubt very much it would be effective to try and push for a private litigation framework in those countries.

FRIEDMAN: Right.

I have a series of other questions, but in light of the star power and the sort of attending here this evening, what I thought I might do is open it up immediately for questions. Obviously, what I want to do is make sure that all of you understand that, you know, sort of Christine's remarks, you know, while extraordinarily interesting, and provocative at times, she will not be able to respond to any inquiries about any ongoing investigation. So I think it will be a more useful conversation --

VARNEY: And may have been in the paper this morning.

FRIEDMAN: -- (inaudible) -- questions, including the crawl on CNBC this morning.

VARNEY: As we say in my house, "Don't even go there." (Laughs.)

FRIEDMAN: (Laughs.) So when you get -- if you have a question, why don't you raise your hand, you know, sort of wait for the mike, make sure the mike gets to you, and state your name and also make sure you state your affiliation And -- yes.

Q Good morning. Merit Janow, Columbia University. First, I do think this focus on remedies of single-firm conduct is really important, and I congratulate you for that. I'm wondering if you have pondered whether there are any kind of process measures that could be taken.

And what I'm thinking of is, you know, there have been moments in the past -- particularly, I think, Bob Pitofsky, when he was chairman of the FTC, that said, you know, we should work with the community as closely as possible, and we should always be fashioning teams between the U.S. and the commission when we're both investigating mergers or when we're both investigating the behavior of the same firm, and try and work as a team as far as we can; and to the extent that we can introduce remedies that are not ultra vires but are responsive to the EC's concerns, we should do so, and they too.

And I always thought that was a productive mindset to try and keep us in the same track on the question of remedies, but it hasn't proven entirely responsive, as we've seen and as you're stressing. So I'm just wondering if you've thought, in addition to using the bully pulpit, as you are publicly, if there are other process responses that might be possible, particularly between the U.S. and the community.

VARNEY: Sure. Let me take that. It's a little bit easier to bite it off if you look at it from the perspective of mergers. I think single-firm conduct is a different issue, because their jurisdiction can have concerns that -- I'm not sure the businesses under investigation would welcome a broadening of that investigation across jurisdiction borders.

On the merger side, I think that we're ripe for the next step in this evolution. As you mentioned, my dear friend and professor and chairman when I was the FTC, Bob Pitofsky, spent a fair amount of time focusing on this, and at least got the dialogue started. And the Europeans actually put a little bit more timing into their merger review, so that while the substance goes a little bit differently -- you have to put more information up front in the EU and they have a longer time to review it, and then if they go to what we would consider our second request they have a shorter time. We do the reverse. We do the short look first, and then extend.

The first issue is whether or not the parties to the merger would consent to joint review, because we can't share information that you provide to us without your consent, and that's correct. I think that -- you know, I've come from 12 years in private practice, and I saw in my time in private practice the reluctance of my clients to go ahead and jumpstart the EU process. There was a belief -- not wrongly -- that if we got through the analysis first, that perhaps the Europeans would take, you know, some of our work and base their review on it.

I think we're quickly coming to the point where we have to put the question on the table whether or not our companies, as they consider mergers, are willing to go forward with both reviews more or less simultaneously, in coordination, on the enforcement level. That partially involves, I think, confidence from business that both agencies will start from a similar set of facts, will be informed by each other's analysis and come to the correct conclusion. The more that we have done our own merger analysis and come to what the business community generally would recognize and support as a good result, I think the more likely the business community is to have confidence that you could still reach a good result with two enforcers.

To be frank, my own experience is that there's concern in the business community that enforcers talking to each other doesn't always lead to the best result. And what we've got to do is change that framework so that there's confidence that going forward together will not only result in the right result, but will bring us the right result more efficiently and more quickly.

FRIEDMAN: Yes? Elai?

QUESTIONER: Elai Katz from Cahill Gordon. You spoke about convergence, and you gave us some examples of places where over the years there's -- has been convergence, mostly as a result of discussions between people at our agencies and agencies in foreign jurisdictions. And there's been a lot of progress.

One question that comes to my mind -- and I think I'd be interested in hearing how you're thinking about it -- is that both here and also abroad there are some limitations as to what enforcers can do, because their judicial systems have come up with various rules and precedents that they must follow -- specifically here, I'm thinking, we're living under Trinko and other decisions like that --

VARNEY: Right.

QUESTIONER: -- that may be different than what kinds of cases may be brought in Europe or elsewhere. And so as you think about convergence, as you talk to or instruct your colleagues to talk to others about convergence, how do you deal with the judicial limitations that you have that may or may not differ with what the views are presently at the division?

VARNEY: Carefully. Very carefully. (Laughs.) You know, we look -- there's been a couple of Supreme Court decisions in the last few years that are very important for our enforcement. You mentioned Trinko. There's Leegin. There's, you know, maybe three or four others. And as with every matter before us or every conversation we have, we do look at the Supreme Court precedent, but we look at it as applied to the facts in that case.

Trinko, for example -- my view is the Supreme Court articulated a doctrine when you're looking at regulated industries. So, you know, for the most part we don't see mergers across jurisdictions in regulated industries.

It remains to be seen whether or not any Supreme Court precedent or other judicial precedent has extraterritorial consequences that inhibit our ability to coordinate. I don't see it at the moment. My conversations with the Europeans, the Japanese, the Koreans have been extremely fruitful, and we have not yet bumped up against any precedent on either their end or our end that would inhibit our ability to work more closely together.

QUESTIONER: Hi. I'm Marc Levinson with the council. A question on a subject near and dear to my heart, and that is shipping conferences.

The -- this is an area in which the law -- (off mike) -- one country to another. Question one: Do you see any prospect of more convergence between the U.S. antitrust approach to shipping conferences and the -- and our major trading partners'?

Related to that, the question has been raised lately in Europe as to whether the difficult market conditions in the shipping industry don't merit some sort of postponement, suspension, temporary reprieve from antitrust law. Do you see any justification for that sort of thing under U.S. antitrust law?

VARNEY: Well, you've got international shipping, and then you've got internal domestic shipping. As you know, in the United States, railroads enjoy immunity from the antitrust laws. Under the Surface Transportation Board, they're regulated industries. Oftentimes in the United States, when we have a regulated industry, we have a different approach to antitrust, because in fact there's not competition, there's regulation. So in the United States, I don't think that the administration has taken a position on any particular antitrust approach to our own regulated industries.

The international shipping issues are actually outside my jurisdiction. That's dealt with through the Department of State and the Department of Transportation. Although we bring a competition perspective to the table, those issues are outside of my jurisdiction. So I really can't comment on them.

FRIEDMAN: Here.

QUESTIONER: (Off mike) -- I want to focus on what you said about convergence. I know we've -- (off mike) -- in the United States -- (off mike) -- Europe -- (off mike) -- Korea. When we're talking about emerging countries, where they have very different traditions and emerging antitrust laws or maybe none -- (off mike) -- antitrust laws, how do you factor in the -- (off mike) -- and their different views of antitrust and competition -- (off mike) -- policy, which -- (off mike) -- different analyses of policies -- (off mike)?

VARNEY: Through a lot of international dialogue. When you're working with emerging regimes, what we have found, at least up to the present, is that any of the emerging regimes, if you look in India -- Russia's, you know, not -- I wouldn't call it an emerging -- but their competition work is certainly emerging. So if you look at India, Russia, China, Brazil, for example, we've had, we believe, great success in our technical assistance.

So we're not working with them at the moment on specific transactions; we're working very closely with them as they develop their body of law and their thinking. So on almost a monthly basis between the Department of Justice and the Federal Trade Commission, we have staff either in country or country enforcement staff in the U.S. doing training with us, going through out case law, going through our analytical tools, studying our merger review guidelines. We have a lot of conversations about how to account for economic -- different economic histories. When you have markets that are just opening up, how do you use antitrust as a tool to help those markets to continue to open?

You know, this is not a conversation that is new to us. In the 1990s, when I was at the Federal Trade Commission, was when Europe was beginning to open many of its markets that had historically been state dominated. So we had a very good working experience and track record in Europe in opening up a lot of those -- in helping them to open up a lot of those markets and antitrust or competition, in forming the government authorities and the deliberative bodies that actually fashioned the opening of the markets and the applications of the law.

So it does remain to be seen how this will work on our first merger where there is a significant objection where we may not have one in a foreign jurisdiction. We'll see. Stay tuned. Hopefully, the days of GE-Honeywell are long behind us. I am committed to making sure that kind of a result does not happen on my watch, but, you know, we have to work hard at that.

FRIEDMAN: Yes?

QUESTIONER: Scott Hemphill, Columbia Law School.

So I guess my question is a short one. Financial distress of firms throughout the economy has made, it seems, a big difference in the vigor of antitrust enforcement, and I'm just wondering if you see that as a source of convergence or divergence across regimes.

VARNEY: You know, I'm not sure that it's a source of convergence or divergence. I don't -- in my perspective, the current economic climate we find ourselves in has probably not resulted in a change in antitrust enforcement. I think if you go back over the last eight years, there is a perception that, you know, antitrust was not as vigorously enforced as it might be, but I think that is really due to legitimate philosophical differences. If you look over the previous eight years, I think the -- there was probably a presumption that markets are the best-equipped facility to arbitrate the allocations of resources in the economy, and government should rarely, if ever, intervene. I think we have a view that markets are the most efficient allocator of resources in the marketplace.

But there are circumstances where the market can't do that and it is appropriate for the government to intervene. So we're looking at potentially a slight shift in balance; not much. And I don't think that that is -- has led to a -- either a decrease or an increase in antitrust enforcement, given the financial times. I think it's more of a philosophical balancing.

FRIEDMAN: Just to follow up on that question, do you think that the lack of antitrust enforcement, the less rigorous antitrust enforcement in the previous eight years, had any impact or had a contributing factor to the financial issues that this country has faced and the world has faced?

VARNEY: I don't think it's a lack of antitrust enforcement. I mean, I think that most of the, you know, popular commentary suggests that it may have been not as much enforcement of existing regulation, or lack of a regulatory framework. I don't pretend to be an expert on what led us to our current financial state, but I doubt very much it was lack of antitrust enforcement in the last eight years.

FRIEDMAN: Okay.

You had a question? Excuse me?

QUESTIONER: (Off mike). My question was, in light of the comments you made about tailoring remedies and convergence, do you think that the DOJ should look more favorably on the use of behavioral remedies in merger enforcement and perhaps bring the U.S. more in line with the EU in terms of some of the things that they've done on their phase 2 reviews?

VARNEY: Yeah, the question really goes to -- there's a kind of philosophical split of either -- particularly with a merger -- either a merger is illegal and you block it or it's legal and you do nothing. And kind of in between, there's a sense of, well, you know, there's some problems with this merger, and if you fashion some what we call conduct remedies around the edges, you might be able to let the merger go through.

I really have not been presented with a merger where I would have to look at quote, you know, conduct remedy. So I would never take them off the table, but I think you have to evaluate every transaction on the merits of the transaction and make your decisions accordingly.

FRIEDMAN: Yes?

QUESTIONER: Thank you. Peter Beshar, from Marsh & McLennan. I was hoping to ask a broader question about the perception of business inside of the government. I had a discussion with an unnamed attorney general's office several years ago, and they said, "You know what we say about corporations," and I said, "No." And they said, "We believe all corporations are created evil." (Laughter.) I thought, "Well, that's a challenge."

There are fewer business leaders in this administration than has been customary in the past several administrations, whether in Commerce or in other departments. In the discussions that you partake in, whether from an antitrust realm or more broadly, is there a fair business perspective that is part of that dialogue?

FRIEDMAN: That's a great question.

VARNEY: I would say, you know, absolutely. When we look at -- let me talk just to what I do, which is the Antitrust Division. When we are looking at the matters in front of us, we are looking at enforcing the laws fairly. Fair enforcement of the laws benefits business across the board. You know, I often see, in my private practice as well as now that I'm in the government, business always likes antitrust laws enforced when it's not particularly something they're involved in. (Chuckles.) They want to see it enforced everywhere else.

But I do think that kind of fair, predictable application of the antitrust laws benefits business, benefits consumers, benefits the economy. So that if you're in business and you're making decisions, if you've got a clear understanding of what's permitted, what's not permitted, how much risk you want to take on questionable areas, that's good for business. That's pro-business. So I do think that we're very concerned about the overall -- in the Antitrust Division, the application in a fair, predictable and transparent way of the laws.

FRIEDMAN: Yes.

QUESTIONER: Hi. Matthew Leising with Bloomberg News. I was wondering if you could speak broadly about the challenges in antitrust when you're dealing with a company that might be owned by a number of banks where the potential for anticompetitive behavior could be larger. VARNEY: Well, again, you know, if it's a merger or single- firm conduct, we really look at every transaction or every investigation on the merits of that transaction or investigation. It's not, you know, necessarily definitive, or necessarily even relevant, who the owners of the company are. It could be a publicly- traded company; it can, you know, be held by many institutions or not.

We don't -- you know, we don't have a specific view towards entities that are owned or operated by any sector of the economy, so we look particularly at transactions or behavior, on the facts that they arise in and fashion, you know, determinations about either litigation or prosecution accordingly.

FRIEDMAN: Yes?

QUESTIONER: I'm Mike Erman from Reuters News. Would you foresee that your team would ever take on a vertical merger? And how would you approach that?

VARNEY: (Laughs.) It's interesting. As I -- Nick asked me a question earlier -- and you know, when my husband asked me to marry him, he said, "What would you say if I asked you to marry me?"

QUESTIONER: (Laughs.)

VARNEY: And I said, "I don't answer hypotheticals." (Laughter.)

QUESTIONER: (Laughs.)

VARNEY: So you know, I am not allergic to vertical theory on mergers or integration. So you know, again, I sound like a broken record, but it really is a message I want to leave all of you with.

We look at every transaction on the merits of the transaction. So if there is foreclosure that occurs due to a transaction, that is something -- in a highly concentrated market -- that is something we may be concerned about. So I wouldn't say vertical is off the table or that we're looking for a vertical case.

You know, one thing I get a lot of is, well, are you looking for this kind of case, or are you looking for that kind of case? We don't really look for cases. (Chuckles.) Parties decide to merge. It's not like I can call up two of you in the room and say, "Could you merge so I could test out this theory?"

QUESTIONER: Okay.

VARNEY: So you know mergers come to us as they come to us. And we obviously are very aware of differences in various sectors of the economy. And our job is to make sure that the markets are operating competitively. So that's what we're looking for. We're not looking to push any particular agenda, theoretical or otherwise.

QUESTIONER: Could you also just -- you know, in a way follow up the -- series of the questions, and also go back to the question of convergence, you know, how you analyze the -- how you analyze mergers between American companies that hold, you know, sort of substantial, maybe almost dominant positions --

VARNEY: Right.

QUESTIONER: -- but they have serious competitors in China or India or prospective competitors that -- and how it affects your analysis?

VARNEY: Sure. What we do -- and this is laid out in the merger guidelines, as I referenced -- we are undertaking a review of the merger guidelines to ensure that they are transparent and reflect the agency's current thinking. You know, historically, when you look at markets, you look at markets in terms of geographic markets: where the products are made and where the producers are.

Increasingly, I think merger analysis reflects that you have to look at where the consumers of the goods are.

So in a worldwide market we would certainly take into account worldwide competition. So that's something that I think you'll see discussed. We're having four or five workshops coming up on the merger guidelines. I anticipate that there'll be a lot of discussion about how markets are defined and identified in the context of the merger review guidelines, and taking into account global competition is obviously something that's very important as we go forward.

QUESTIONER: Elai Katz again. You'd mentioned the merger guidelines revisions, and you alluded to market definition. There's been some talk amongst leading economists now in the government about whether or not it's really necessary to define markets in all cases. And when I think of convergence, I think of us, the United States, having exported the notion that markets must be defined first, and I think most jurisdictions I'm aware of have that as part of their guidelines.

VARNEY: Right.

QUESTIONER: They say, step one, define the market. Can you speak -- to some extent, I understand that we're just talking about discussions and workshops, but the importance of -- in order for there to be convergence around the world in merger review, maintaining that sense that step one is market definition. The question on effects comes after that.

VARNEY: Right. Well, certainly, having Dr. Carl Shapiro, one of the preeminent industrial economists in the United States, on my staff as my deputy for economics, I'm very aware of that conversation. I will say that, in the United States, when you go to litigate a merger, courts start with the market definition.

So while we can be greatly informed by the economic analysis around market definition -- and the question that's being asked is the idea that traditionally antitrust theory starts with, you define the market. And there are a number of ways you do that: looking for next-best substitutes and price restraints. And there's a conversation going on in the economic literature about whether or not you should really be looking at the potential effects of the merger and then thinking about what the market is. And I actually don't think they're mutually exclusive. I think what's important is for the business community and the lawyers who practice in this area to understand how we evaluate potential mergers so that they can advise their clients accordingly. And if we are looking at effects to inform our definition of markets, that's something we should be talking about.

I think you also, though, can't lose sight that we have a lot of litigated precedent here. So while we may be thinking about how we look at markets, we have to be mindful that courts will also have certain requirements as to how you demonstrate concentration in a market and therefore anticompetitive effects that might flow from a merger in a highly concentrated market. So I think you'll hear a lot of discussion on that in the coming months.

FRIEDMAN: Okay. Yes.

QUESTIONER: Hi. Larry Reicher, also with Cahill Gordon. Following up on the precedent that you're dealing with, is there a particular precedent which you feel your department might be particularly interested in submitting briefs to the courts looking to change the current juris-prudential landscape?

VARNEY: Well, you know, we are -- we have a very active -- reactivated amicus program where we are beginning to put on the record a lot of our views. We recently submitted a brief in the Cipro case, which is not a Supreme Court case, it's here in New York in the 2nd Circuit, where we talked about the legitimacy of reverse payments to settle patent disputes between grant holders and generic drug manufacturers.

We're also -- I believe we've already -- have we put on the record the American Needle brief? We've put on the record American Needle. We have a couple of other briefs that will be coming up. So you will see what informs our briefs is really advocacy of first principles around antitrust and competition, and you'll see that, I think, throughout my tenure.

FRIEDMAN: Yes?

QUESTIONER: Yes. (Name inaudible) -- Saudi Petroleum. You talked about coordination and some communication between you and your counterparts in Europe and some other parts of the world about exporting your antitrust regulations. I was just wondering, was there any attempt to do the same, export your regulations, rules, policies, to some countries in the Middle East?

VARNEY: You know, I haven't -- there's one forum called the International Competition Network, and there are several countries of the Middle East that participate in that forum.

I met with several of my counterparts in Zurich of this year. I look forward to meeting them again in Turkey in the spring. That is a network that works at the staff level year round, and there are many, many conferences, papers on specific issues, exchange of ideas.

So yes, the International Competition Network is the place where we really see most of our counterparts from the Middle East, and we do work very closely with them as they're developing their thinking.

FRIEDMAN: Do we have any other questions?

Christine, would you sort of -- maybe you want to discuss a little bit about how, you know, sort of your own attitude change by your years in private practice when you returned to the government, because, you know, while it's not a specific question with respect to a specific matter, I'd be very curious as to how your own thinking has evolved and changed as a result of that.

VARNEY: Well, I have the advantage of having been in government once already. So in 1993 and '94, I was in the Clinton White House as the Cabinet secretary, and it -- what's interesting to me is not so much how my thinking has changed from being in private practice in coming in the government, because I've done that before. There is a difference between sitting in the White House and sitting in an agency, and that's been illuminating to me because, you know, we are really trying as an administration to get the economy back on its feet, to put Americans back to work, to get health care out there to all Americans at an affordable price; and that's something that, you know, being on the front lines of trying to help, as opposed to sitting in the White House, has required me to put on a different hat and think differently.

And it's been terrific. I mean, being -- you know, when you're in the White House, you don't deal so much with all of the people throughout the government. And in my own division -- there's about 800 employees in the Antitrust Division, and I can tell you they are some of the smartest, most dedicated individuals I have ever met. They do this, for the most part, because of a passion, a belief in government, a belief in doing the right thing and a commitment to serving their country.

So it's really been -- it's been great for me to actually be out in an agency and kind of working on the front lines of accomplishing what -- in my last career inside the government you were more removed, you were really -- you know, you had to knit it all together, and it was very, very difficult. But sort of now I'm -- I feel like I'm more of a foot soldier, and it's actually been quite exhilarating to work with the people on the front lines.

FRIEDMAN: And what about the difference in the administrations, between the Clinton and the Obama administration?

VARNEY: Well, different times. I mean, you know, clearly, the Clinton administration was pre-9/11. We did not have the financial circumstances we have today. I think, you know, President Obama faces the toughest circumstances that any president in modern time has faced. And it's an exceedingly difficult challenge, and fortunately, you know, in my view, we have somebody who's more than up to the job and will not only meet but conquer the challenges in front of him.

FRIEDMAN: Yes, of course, John (sp).

QUESTIONER: John Eastman (sp). I'm not -- I don't come from the antitrust world, so I'm not sure I'm framing this question correctly, but it's -- we're -- it's -- there's a rapid emergence of true disruptive technologies that come with a really monolithic dominance, with no convergence or mergers or anything.

VARNEY: Right.

QUESTIONER: They're really just pure intellectual ideas, and the best is the algorithms of Google, which dominate the world and probably is the only instrumentality that can reach the 2-1/2 billion people on the World Wide Web.

Is the Justice Department developing new guidelines for that sort of -- for enforcement, or even dealing with these extraordinarily nascent, purely intellectual ideas, which really do dominate worldwide?

VARNEY: No, we're not developing new guidelines. You know, what you're talking about is generally, in traditional -- I think there's a few economists in the room -- economic theory network effects, so that when you have an industry or a firm in an industry that reaches dominance and it's a networked industry, meaning, roughly, the more people that are consumers of the industry, the more -- the product, the more value it has.

You know, in this country, as I hope around the world, we do not punish success. You know, we reward success. Being big is not bad. Being big and successful, however, comes with certain responsibilities. And what you have to be careful of, whether it's any company that has a massive, you know, market share, you have to be careful about being consistent with the principles that are outlined in the Sherman Act. And that's really what we watch for.

I start from the point, John (sp), where I believe that the antitrust laws and framework are robust enough at this point to begin to understand the new economy. If we're wrong and it turns out we need some tinkering with theory or law because the law doesn't adequately account for network effects, well, we'll think about that. But I believe we're, you know, sufficient in our rigor, in our legal thinking and our economic analysis and tools to look at any potentially competitive effects in a networked industry.

It's a particularly important question with intellectual property and innovation markets, without regard to the sector that they're in; particularly important in a global economy as well. So we're going to continue to look at it, but I think we've got everything we need.

FRIEDMAN: Are there any further questions for Christine?

I think, John, actually, your question was a delicious one. And that obviously, you know, sort of Christine sidestepped completely the one on Google -- (laughter) --

VARNEY: (Laughs.)

FRIEDMAN: -- which we all -- we all recognize, but --

QUESTIONER: (Off mike.)

FRIEDMAN: Please. Please do.

VARNEY: Yes.

QUESTIONER: Again, coming from a very different world, it would not surprise me if the -- not Google, but the dominance of these pure intellectual ideas, which dominate for the first time in history without any need to manufacture anything -- the similarities between enforcement involving these new, emerging -- really, yet nascent technologies, and what the Justice Department faced really with the first real application of the Sherman Act in Standard Oil, are not going to be that different. Because the power is such and the -- in this case, the impossibility of seeing how they dominate is really -- may well require a fresh look at how things are dealt with, and also a tremendous cooperation among international enforcement agencies.

VARNEY: Well, and that's why I mentioned intellectual property and innovation in my remarks, because I do think, you know, intellectual property is the oil of this century. And you know, as we move from an industrial-based economy to an information-based economy, understanding, you know, how to protect and promote rights that attach to intellectual property well, you know, simultaneously living in a global world, is going to be a difficult challenge.

I think, if I understood your last comment, you would agree with me that the Sherman Act is likely robust enough to take on those challenges. And we don't foresee, you know, any dramatic changes in doctrine. QUESTIONER: (Off mike.)

VARNEY: I think that's right.

QUESTIONER: (Off mike.)

VARNEY: (Laughs.) One that I look forward to having.

FRIEDMAN: And speaking of longer conversations, I think we've gone about as long as we can. No, no, no, I think we're -- we're -- it's 9:00, and we promised each of you that we'd be able to let you go. And I know that Christine has, you know, sort of a full agenda for today.

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